Saturday, 9 June 2012

Why markets rise despite fears of european collapse?

 Bearish sentiment has increased dramatically the last month. Fears for the european debt crisis, Greek upcoming elections and possibility of Spain in need  of a bailout plan has pushed both european and american markets downwards. EUR/USD  has been sold hard the last weeks and everyone seems to want to sell euros. The increased bearish sentiment is byitself one reason whe we were expecting markets to make a bottom soon. If every one had gone short who would be left to sell? Noone, that is why with elliott waves we can capture the markets movement and expect when a move is beginning or is at its final stage.

Looking at the DJI daily chart we see 5 waves down. Before the end of the 5th wave it was noted that the move from the highs could end anytime since we were at the final wave. The market bounced upwards almost 500 points in 2 days. With a bearish scenario as the most possible one yet, the countertrend rally is part of a larger correction. This correction will take the form of 3 waves and we probably have finished the first wave up or are about to.

Taking a closer look at the 30m chart in DJI we can see 5 waves up from 4 of June low. This can be wave A. The move from that high could very well be part of wave B down but it needs more time to unfold and for the wave structure to be clearer. When this wave B  is finished, we shall be able to calculate possible targets for wave C. All these wave counts take into consideration the bearish scenario that we started in April a new trend downwards. If this is not true we could very well see an impulsive move start from June lows. That is why I also labeled wave 1 the alternative to wave A.
 EUR/USD 6h chart looks similar in form and direction to the US indices. The worrying part of this chart is that the upward move still looks corrective as the past ones in March and April. In both these months lower highs and lower lows were made signalling weakness. After a long decline of more than 800 pips, the pair is bouncing upwards. If european and US indices are in a wave 2 stage, this means that the pair is most probably in a correction that could reach 1.27-1.28. After that is finished, new lows are ahead. Many fear the breaking of european union, others the collapse of the financial system.

Many people expect the euro to collapse, Greece to default, the prices to plummet in a deflationary spiral and financial markets to relive a year like 2008 in a scarier version. Call me contrarian but my experience tells me that in markets things go exactly the opposite from what most people expect them to. This doesn't mean that markets will go up either. The problems are there in europe and are very real. Elliott waves project rough times ahead for the markets unless something changes the next month or so. Time will tell and we must be prepared to adjust our strategy and trading.

Thank you for taking the time to read my post.

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